"China Real Estate Report Q2 2011" is now available at Fast Market Research

March 29, 2011 - PRLog -- The Chinese economy faces the prospect of a property market slump and a sharp slowdown in total investment spending in 2011. Investment spending growth is likely to be dragged down by a slowdown in money supply growth and the accumulation of local government liabilities, with private consumption - though a bright spot - unlikely to fully compensate. A number of recent developments suggest that real GDP growth will continue to be strong in 2011.

Owing to an improved outlook for external demand, particularly demand from the US, as well as a number of domestic factors that are likely to cushion the slowdown in investment, we now see real GDP growth coming in at 8.3%, rather than 7.5%. We stress, though, that we continue to see below-consensus growth in the absence of another stimulus package from Beijing. Despite headwinds from rising food price inflation, private consumption will be an outperformer in 2011 and beyond, and the service sector will also benefit disproportionately from this consumer growth.

Despite several rounds of cooling measures, China's property bubble continues to grow. Indeed, property prices and sales volume have continued their ascent, fanned by an extremely accommodative monetary environment. Although the latest official figures showed a 6.4% year-on-year gain in property prices in December 2010, unofficial data suggested that house prices soared even more. The China Real Estate Index System has the figures at more than 20% in 2010.

We reiterate that residential property prices are out of line with even an optimistic growth outlook, with rental yields below deposit rates in most major cities, and price-to-income ratios among the highest in the world. Overall, we believe prices are nearing their peaks and we expect to see a decline as the authorities continue tightening monetary conditions.

For the time being, our in-country sources are taking the view that commercial property rents, which have risen consistently through 2010, will advance further in 2011 and 2012. We think that this is reasonable, notwithstanding that the clamp-down on speculation in the residential real estate market could result in a massive diversion of funds to the commercial property market. One of two outcomes could result. The first is an acceleration of supply as the new funds make possible a wave of new developments: this would be consistent with lower (or, at least, more slowly rising) rents than would otherwise be the case. A more likely scenario, though, would be a rise in prices relative to rents, and compression in yields.

Of the twelve sub-sectors for which we have gathered data, the one that stands out as being out of line with the others in terms of valuation is retail property in Shanghai. As of late 2010, net yields were 3-4%. The only other sub-sector for which yields were below 6% (just) was industrial property in Wuhan. Across the other sub-sectors, yields were typically 7-8%. For the time being, we are looking for yields to remain broadly unchanged through our forecast period. However, we note that there must be a significant risk of an adjustment in the Shanghai retail sub-sector (probably as a result of a sharp fall in capital values relative to rents); the most likely catalyst for this would be a downwards revision in projections of growth in consumer spending in China's major cities (and, in particular, for 'high end' items).

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Partial Table of Contents:

SWOT Analysis
- China Real Estate/Construction SWOT
- China Economic SWOT
- China Business Environment SWOT
Real Estate Market Overview
- Table: China's Real Estate Market - Historic Rents, 2009 And 2010 (m2/month, US$)
- Table: China's Real Estate Market - Net Yield, 2010 And 2011 (%)
- Table: China's Real Estate Market - Terms Of Rental Contract/Lease, Mid-2010
- Table: China's Real Estate Market - Available And Vacant Space, Mid-2010 (m2)
Industry Forecast Scenario
- Table: China's Real Estate Market - Rentals, 2010-2012 (m2/month, US$)
- Table: China's Real Estate Market - Forecast Net Yield, 2008-2015 (%)
- Construction Industry Overview
- Table: China Construction And Infrastructure Industry Data, 2007-2015
- Table: China Construction And Infrastructure Industry Data, 2012-2020
- Macroeconomic Outlook
- Table: China - Economic Activity
Business Environment
- Real Estate/Construction Business Environment Ratings
- Table: Asia Real Estate/Construction Business Environment Ratings
- Project Finance Ratings: Outlook For Asia Pacific
- Table: Design And Construction Rating
- Table: Commissioning And Operating Rating
- Table: Overall Project Finance Rating
- China's Business Environment
- Table: BMI Business And Operation Risk Ratings
- Table: BMI Legal Framework Rating
- Table: Labour Force Quality
- Table: Asia, Annual FDI Inflows
- Table: Trade And Investment Ratings
- Table: China Top Export Destinations, 2001-2008 (US$mn)
Company Monitor
- China Merchants Group/ China Merchants Property Development (CMPD)
- China Vanke
- Gemdale Corporation
- Shanghai New Huangpu Real Estate
- Poly Real Estate Group
- Shanghai Industrial Development
- Shanghai Lujiazui Finance & Trade Zone
- Shanghai Wanye
- Shimao Property Holdings
BMI Methodology
- How We Generate Our Industry Forecasts
- Construction Industry
- Bank Lending
- Real Estate/Construction Business Environment Rating
- Table: Weighting Of Indicators
- Project Finance Ratings Indicators
- Table: Design And Construction Phase
- Table: Commissioning And Operating Phase - Commercial Construction
- Table: Commissioning And Operating Phase - Energy And Utilities
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Full Table of Contents is available at:
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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.